Why are we paying more for transmission & distribution charges than for electricity itself? An event discussing the future of the evolving electricity industry.

By Andy Li

Our electricity bills include the cost of energy, used primarily to cover the costs of managing power plants. In addition, we pay for the cost of maintaining transmission and distribution networks for the delivery of energy.

130 years ago, the AC-DC battle between Edison and Tesla ended because Tesla’s AC grid system more efficiently utilized centralized, large-scale power plants.

Today, the electricity and distribution network costs far exceed the costs of energy itself, and this begs the question, shouldn’t we re-examine the necessity of centralized power facilities?

In other words, if the money saved by scaling centralized power plants is not enough to cover the cost of power transmission and distribution in areas with sufficient sunshine or wind resources, shouldn’t we supplement the current energy infrastructure with distributed energy resources, or even replace the conventional centralized infrastructure with distributed energy networks?

Graph 1 is a standard electricity bill in southern California in January. The grid’s transmission and distribution costs constitute 71% of the total electricity bill.

Even if the electricity production costs of distributed energy resources (renewable energy) were three times that of a centralized power plant, distributed generation (DG) would still be more cost effective for end-consumers than centralized power facilities. Moreover, in recent years, the cost of purchasing distributed energy resources has dropped drastically. The economic scale benefits of centralized power plants are far less then a three times decrease in electricity production costs, and the 24-hour clean electricity produced by residents using distributed generation energy can be utilized locally without the need to pay for the distribution and distribution charges. Cleaner, cheaper, and safer, it seems like distributed generation energy is a no brainer.

The picture below shows a real electricity bill in July in the same area. Although the summer climate is hot and the air conditioner is used frequently, the proportion of energy in the bill is greatly increased, but the transmission and distribution network costs are still as high as 63% of the electricity bill. In contrast, distributed power facilities have no network costs, and photovoltaic power generation is the main source of power for distributed energy resources, which coincides with the time people use air-conditioning. Therefore, the advantages of distributed energy resources in summer will be more fully reflected.

According to the report submitted to the California Public Utilities Commission’s on May 21, 2018 by Southern California Edison Power Company, second largest investor owned utilities (IOU) in California, the ordinary residential rate Schedule D [1] that took effect on June 1 2018 has mde the delivery charges higher than that of power generation. Therefore, it is a fact that the transmission and distribution expenses account for more than 50% of the total electricity bills. To make matters worse, for the customers with higher power consumption, the transmission and distribution costs are more than three times the cost of power generation, which explains why the transmission and distribution costs will be as high as 71% of the electricity bill. This phenomenon of higher delivery cost does not occur only in California, but similar cases are found all around the world. We hope that more users can carefully analyze their electricity bills, even if the electricity service is monopolized. We, as consumers, must all understand why we are paying more for the electricity, how the new rate plans affect our lives, how to reduce the peak electricity consumption or reduce the overall electricity consumption, whether or not producing our own electricity will have the cost advantages, reliability, safety and security?

We hope that everyone can understand this issue better, change our way to use electricity, and actively seek alternative energy sources, not only help mitigate the issue of global warming, but also reduce our living costs and improve the quality of life.

Event: ELONCITY’s founder, Andy Li, helps you break down your energy bill.

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[1] Latest Schedule D rate from SCE https://www.sce.com/NR/sc3/tm2/pdf/ce12-12.pdf
[2] Latest E-1 rate from PG&E https://www.pge.com/tariffs/electric.shtml
[3] Schedule DR — RESIDENTIAL SERVICE Effective 7/1/2018https://www.sdge.com/sites/default/files/regulatory/7-1-18%20Schedule%20DR%20Total%20Rates%20Table.pdf